Singapore’s central bank wants to prohibit crypto service providers, including issuers and exchanges, from lending out cryptocurrencies held for retail investors, and ban the use of leverage to trade cryptocurrencies.
The proposals are aimed at reducing harm to consumers in the goal to “develop an innovative and responsible digital asset ecosystem in Singapore”, the Monetary Authority of Singapore (MAS) says in a consultation paper published on October 26.
Crypto service providers may lure customers with attractive yields for holding digital payment tokens or DPTs, commonly known as cryptocurrencies.
“These advertised yields are often much higher than that offered in the traditional financial system, even though the sources of underlying revenue dreams may be unclear or unsustainable,” the central bank and financial regulator says in the 35-page consultation paper.
It proposes to prohibit crypto service providers from mortgaging, charging, pledging, or hypothecating cryptocurrencies belonging to retail customers.
For non-retail customers, MAS wants service providers to issue a clear risk disclosure document and get their explicit consent to lend.
MAS is also looking to bar trading in cryptocurrency using any form of credit or leverage, pointing out that prices are highly volatile and subject to sharp swings. Losses are magnified and customers potentially stand to lose far more than they put in.
The central bank wants crypto service providers to establish and implement effective policies and procedures to identify, address and disclose any conflict of interest. To mitigate such conflicts, it suggests that service providers adopt measures such as segregation of duties, independent reporting lines and information barriers.
MAS urged consumers to be very cautious when trading in cryptocurrencies. “Regulations cannot protect consumers from losses arising from the inherently speculative and highly risky nature of digital payment tokens trading.”
The consultation paper is open for public feedback until December 21.